Ch. 6 Investing

What factors should consumers consider when planning an investment

• Your objectives

• Types of investments

• Expected returns

• Risk tolerance

• Liquidity

• Diversification

What is the largest stock exchange

NYSE

Stocks that are not listed on securities exchanges can be bought and sold at the…

Over-the-counter (OTC) markets

In what 2 ways are stock prices quoted

• They appear in the financial section of the Wall Street Journal and other major newspapers.

• Listings are available on the internet. You can quickly and easily find stock quotes on financial websites

What ways can you earn a return from owning stock

• Dividends

• Selling stock at a higher price than you paid for it

List 3 types of bonds and who issues each type

• Corporate bonds- Corporations that need money to operate and expand

• Municipal bonds- State, county, and city governments

• Government securities and bonds- the US government

2 types of Treasury securities

• Treasury bills

• Treasure notes

• Treasury bonds

Each of the above securities are sold in increments of…

$100

2 types of savings bonds

• Series EE bond

• Series I bond

How much does EE savings bonds sell for

Full face value

What causes many savers to buy I savings bonds

Series I bonds earn interest based on combining a fixed interest rate and the inflation rate

Give 3 advantages of mutual funds

• Professional management

• Diversification

• Liquidity

What costs are associated with mutual funds

• Maintenance fee

• Load

Name 2 financial experts who can offer you advice

• Accountant

• Financial planner

How can you tell an investment offer may be dishonest

• Promises a high rate of return at low risk

• Demand immediate payment

How can you find out if complaints have been made about a stockbroker

Contact the FINRA

What is the relationship between risk and rate of return

The higher the rate of return offered, the greater the risk

Name 2 alternative investment options

• Real estate

• Valuable goods (collectibles, precious metals, gemstones)

How can you earn a return from investing in real estate

• Rent

• Capital gains when you sell the property for more than its purchase price

401(k) plan

Employer sponsored retirement plan that allows an individual to deposit earnings into a tax-deferred investment

Bear market

Extended period of falling stock prices, which comes with uncertainty and pessimism

Blue chip stock

Stocks from large and well established companies that have demonstrated they can withstand downturns in the economy

Brokerage firm

Financial institution that facilitates the purchase and sale of financial securities by buyers and seller

Bull market

Extended period of rising stock prices, which comes with higher consumer confidence and optimism

Capital gain

Income that results from selling an asset for more than the purchase price

Capital loss

Loss of money that occurs when the selling price of an investment is less than the purchase price

Commission

An amount of money paid to an organization or employee for facilitating or conducting a sale

Common stock

Stock that has voting rights and receives dividends when declared by a company

Dividend

Portion of a company’s earnings that is paid to stockholders

Diversification

Spreading risk by putting money in different types of investments

Growth stock

Stock from companies that put a premium on long-term growth. Most or all profits are put back into the company, and often there are no dividends

Insider training

When an employee uses private company information to purchase company stock or other securities for personal gain

Investment portfolio

Collection of the investments a person has made

IRA

Personal account for setting money aside for retirement

Liquidity

The ease with which an investment can be converted to cash without losing value

Mutual fund

Investment created by pooling the money of many people and investing it in a collection of securities

NASDAQ

An American based electronic network for trading securities

Preferred stock

Type of stock that pays a regular dividend at a fixed rate

Prospectus

Legal document that gives a detailed description of a security

Return

Income you earn on an investment

SEC

The governmental agency that regulates the securities industry

Stock

Share in ownership of a corporation

Stockbroker

An agent who executes stock trades for clients

Securities exchange

A secondary market where securities are bought and sold through stockbrokers

Wall Street journal

Most widely known financial newspaper